Facebook sharpens its ad targeting tools

The social network will let marketers target shoppers based on their offline behavior.

Facebook Inc. has long said it wants to make the ads that consumers see across its social network even more personal. Such an approach would drive more ad dollars its way.

That’s the idea behind the social network’s announcement today that it is working with digital marketing vendors Datalogix, Alliance Data System Corp.’s Epsilon and Acxiom Corp. to offer targeting tools that combine the vast array of information consumers share on Facebook with the massive amount of data that vendors gather from retailers’ loyalty cards, as well as the web sites shoppers visit and the e-mail lists they have signed up for.

Facebook has more than 500 unique customer groups, such as “cereal buyers,” which can be further refined into shoppers who buy “fiber cereals,” “hot cereals” or “children’s cereals.” That means that an advertiser could target consumers who are frequent buyers of children’s cereal who live in Chicago and who Like B.O.B. Gear strollers with an ad promoting a B.O.B. stroller giveaway if shoppers buy a certain brand of cereal.

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Previously, advertisers could use information consumers share on Facebook to target shoppers with ads, or use the social network’s Custom Audiences tool to target customers based on information that shoppers have shared with the marketer off of Facebook, such as their e-mail addresses, phone numbers and, for game and application developers, their user names. Or advertisers could use the social network’s Lookalike Audiences tool to target shoppers who share similar profiles to their Custom Audiences customer segments.

Facebook wants the targeting options to make it easy for advertisers, particularly smaller ones, to make better use of the data gathered by both Facebook and its data partners—even if the advertiser doesn’t have its own customer list.

The social network says it will protect consumers’ personal information. That’s because no personal information about Facebook’s more than 1 billion users is exchanged among the social network, advertisers or Facebook’s data partners. That safeguard is called “hashing technology,” which takes an e-mail address or other information and converts it into a string of numbers and letters that cannot be reversed to recreate the original information. And advertisers only see the number of consumers in a particular customer segment. For instance, if a marketer selects to use “children’s cereal buyers” in the United States to target ads, Facebook will show that 14.8 million consumers belong to that group.

Facebook says that the tools will make the ads more relevant to consumers, and therefore more effective. Facebook says it knows whether shoppers like a particular ad because they can click an X box on the social network that hides the marketing message. Since Facebook launched Custom Audiences, also designed to make ads more relevant, the ads created using that tool have a 15% lower X-out rate than ads not using Custom Audiences, the social network says.

Today’s announcement will lead to more revenue for Facebook, says Rebecca Lieb, an analyst at the business research and advisory firm Altimeter Group. “This should really increase the effectiveness of ads on Facebook,” she says. “In the long run, when advertisers understand how to best use these tools, it should lead them to advertise more, leading to more dollars for Facebook.”

Not every analyst shares her enthusiasm.

“If Facebook wants to be a media property, this is a good move,” says Nate Elliott, vice president, principal analyst at Forrester Research Inc. “They’re giving marketers more granular forms of targeting using data from vendors marketers already trust. But this is another step in the ‘Yahooization’ of Facebook. Being a large media property is not the promise of Facebook. The value of Facebook isn’t running ads on Facebook, it is using the data Facebook collects to power more effective ads everywhere.”

Facebook, he says, should figure out how to use the data that only the social network gathers to link advertisers to Facebook users who are not on Facebook at the time. “If [Facebook] is not doing that, it is playing small ball,” he says. “If in two years most of the money that Facebook makes from advertising is from ads on its own site, than it hasn’t seized its opportunity.”

Facebook declines to discuss future plans, including whether it is considering an ad network.